Reverse Mortgage Guide: What Is a Reverse Mortgage?

A reverse mortgage is a loan that allows Canadian homeowners aged 55 or older to access a portion of their home equity without making monthly payments. Instead of you paying the lender, the lender pays you — either as a lump sum, regular advances, or a line of credit. The loan is repaid when you sell the home, move out permanently, or pass away. This guide explains how reverse mortgages work, their costs, and how they compare to other home-equity options like a HELOC or refinancing.

How Does a Reverse Mortgage Work?

With a reverse mortgage, you retain ownership of your home while the lender places a charge on the property. The amount you can borrow depends on your age, the home value, and current interest rates. Generally, the older you are and the more equity you have, the larger the loan. You never need to make principal or interest payments while living in the home; instead, interest accrues on the balance. Over time, the loan grows, reducing the equity you leave to heirs.

• No monthly mortgage payments required — interest is added to the loan balance.
• You must continue paying property taxes, home insurance, and maintenance.
• The loan becomes due when you sell, move into long-term care, or die.
• Proceeds are generally tax-free because they are considered loan advances, not income.

Eligibility and Requirements

To qualify for a reverse mortgage in Canada, you typically need to be at least 55 years old. Your home must be your principal residence, and you must own it outright or have a very low remaining mortgage. Lenders will assess your home value and your ability to maintain the property. A credit check through Equifax or TransUnion Canada is standard, but there is no income test — the loan is secured by your home equity. Provincial regulations may affect the terms, so it is wise to consult a licensed lender familiar with your province’s rules.

Costs and Interest Rates

Reverse mortgages come with fees similar to a traditional mortgage: appraisal fees, legal fees, and an origination fee. The interest rate is typically higher than a standard mortgage or HELOC because the lender waits years for repayment. Since the loan balance grows over time, the total cost can be significant if you stay in the home for many years. It is important to compare interest rates from multiple lenders and understand how compounding affects your remaining equity.

Alternatives to Consider

Before choosing a reverse mortgage, explore other ways to access your home equity. A HELOC lets you borrow as needed and pay interest only on what you use, but it requires income to qualify. A home equity loan (often called a second mortgage) provides a lump sum with fixed payments. Refinancing your existing mortgage could lower your rate or extend your amortization to free up cash. Each option has different costs, risks, and effects on your finances. A licensed lending partner can help you compare these products based on your personal situation.

This guide is general educational content and not financial advice. Always speak with a qualified mortgage professional and review all terms carefully before committing to any loan product.